Negative inflation unusual: Finance secretary

Describing the negative inflation as 'unusual', finance secretary Ashok Chawla said on Thursday it would not lead to any change in policy stance of the government.

"Our assessment is that Wholesale Price Index is likely to be in the negative region for sometime to come. This is something. . .(that does) not really lead us to any major policy shift," he told reporters here.

Inflation for the week ended June 6 turned negative for the first time in three decades to (minus) 1.6 per cent, even as the prices of essential food items continued to surge.

"Inflation numbers which have come are unusual. . . (but) they are not unexpected," Chawla said, adding the major reason for negative inflation is the base effect.

The wholesale price index during the corresponding week a year ago was in the double digit at 11.66 per cent.

"It's a technicality borne out of the fact that fuel prices were very high during the corresponding period last year," he said.

International crude oil, currently at $70 a barrel, was trading around $140 a barrel during the same period last year.

As a result, the fuel index slipped by 13 per cent to 326.2 from 374.2 in the the corresponding week a year ago.

Falling inflation, according to Chawla, is not a reflection on the contraction in demand as we know the economy is on the path of growth.

According to Planning Commission deputy chairman Montek Singh Ahluwalia, GDP is expected to grow at seven per cent for 2009-10.

However, RBI in its annual monetary policy released in April pegged India's GDP growth at around six per cent.

"Like all emerging economies, India too has been impacted by the crisis, and much more than was expected earlier," RBI Governor D Subbarao had said.

The GDP growth has moderated reflecting lower industrial production. Besides, negative exports, deceleration in services activities, dented corporate margins and diminished business confidence have impacted growth rates, he had said.

The RBI report also predicted about inflation turning negative during the year.

The Governor had said WPI inflation is expected to be in the negative zone in the early part of the current fiscal.

"This is only of statistical significance and is not a reflection of demand contraction as is the case in advanced economies," Subbarao had said.